What the Rs 13,000-Crore Infosys Share Repurchase is All About
The Infosys Board has approved a share repurchase a day after Vishal Sikka tendered his resignation as CEO and MD, plunging the company into more turmoil amid a feud between the management and founders.
Image for representational purposes. (Reuters)
New Delhi: The Infosys Board has approved a share repurchase a day after Vishal Sikka tendered his resignation as CEO and MD, plunging the company into more turmoil amid a feud between the management and founders.
Here’s a look at what the Infosys share buyback means:
What is a share buyback?
A share repurchase or buyback is when a company decides to buy its own shares from investors who are willing to sell. Infosys will buy back the share at a purchase price of Rs 1,150 a piece, which is 25% higher than the stock's closing price on Friday. Hence, people who hold Infosys shares may be tempted to cash out.
What are the buyback numbers like?
The company plans to buy 11.3 crore shares, or 4.92% of its equity capital and will spend Rs 13,000 crore on the plan. That's a cool $2 billion that Infosys is spending to boost its own stock.
The background to Infosys share buyback?
In April, Infosys had announced that it would pay Rs 13,000 crore to investors via dividends or a share buyback. There was massive investor pressure on the company to spend its $6 billion cash pile, especially after other tech companies like TCS and Cognizant increased shareholder value via massive payouts.
Further, Friday’s developments would not have gone down well with the markets.
Investors on a conference call after Sikka's shock exit raised questions about the company's corporate governance standards and asked if there was any assurance that a future CEO would not face the same problems. In such a scenario, Infosys stock will probably underperform the benchmark stock indices.
How has Infosys stock performed in the recent past?
Not too well. It has declined around 15% in value, leading to shareholder discontent. After Friday’s events, analysts have started putting a sell rating on the stock.
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